What We’re Reading: Resource Revolution

What We’re Reading: Resource Revolution

Is a quiet revolution to make productive use of resources underway? Matt Rogers and Stefan Heck of McKinsey and Co. make a persuasive case that leading companies are revolutionizing the way that we make use of physical resources such as energy, whether oil or solar, and materials used for products.

This “resource revolution” claims that just as technological advances increased the productivity of labor tremendously in the last generation, innovative new technologies will increase the productivity of resources over this generation. Is this resource revolution, along with climate change, the greatest wealth-creating opportunity of a generation, or just another incremental step?

The book has three basic premises: first, that technology is behind each progressive change in energy resources; second, that leading companies, by dint of creativity, testing, and hard work, are opening up new markets and changing the way products and services are delivered; and third, that a series of challenges can be expressed in the form of future model companies designed to spur entrepreneurial activity.

The climate change debate has for years been dominated by a pessimistic perspective first penned by Thomas Malthus, a British clergyman, and adopted in part by former Vice President Al Gore. This model suggests that earth is a sinking ship destined to sink because of intractable problems linked to our consumption.

The McKinsey team, dissecting previous “revolutionary” transitions, points out that the Malthusian cataclysm hasn’t occurred due to improvements in technology and, in particular, new applications of technologies that permit more needs to be served with fewer resources. This historical perspective is quite helpful to put in context our current resource dilemmas and to help see the vital importance that businesses play in solving problems.

The second part of the Resource Revolution book highlights the individuals and firms that have led the most recent resource revolutions. George Mitchell from Mitchell Oil pioneered hydraulic fracturing or “fracking,” which has changed the U.S. from a major oil and gas importer to an exporter of natural gas and the largest worldwide petroleum liquids producer in less than a generation. Elon Musk has stood the auto industry on its head with a luxury electric car that is a pleasure to drive. The solar industry, which has grown over 1000% in the past 10 years, is also described.

Internal combustion vehicles are notoriously inefficient.

One slight inaccuracy is the emphasis on the innovations of California solar firms, when third party solar financing was pioneered some 5 years earlier by an East coast firm, SunEdison, which is still one of the nation’s largest on a megawatt basis. Another perplexing element is a downgrading of the contributions of various large firms that developed advanced technologies — such as LED lighting — that have subsequently been adopted by smaller firms such as CREE.

The third section of the book sets out some model business opportunities for entrepreneurs based on the authors’ core principles, such as “the common themes of reducing one way resource flows, increasing circularity, and using digital tools like object-oriented programming to reduce waste and provide greater consumer choice.” Top opportunities identified include a net-zero decentralized energy company and a “tertiary recovery” oil and gas company.

Over the last 15 years, we at LGA have evaluated companies in terms of their ability to integrate these Resource Revolution concepts into products and services offered to the public. We see plenty of evidence that many large firms have improved their resource productivity tremendously over the last decade. A subsequent blog post will go into some of the companies LGA sees that have already started converting on the opportunities laid out in Resource Revolution.

Resource Revolution, by Matt Rogers and Stefan Heck of McKinsey & Co., is a worthwhile and insightful book that goes far to explicate the massive business opportunities associated with the challenge of providing energy and consumer lifestyle choices to 2.5 billion new global middle class customers—largely in the developing world. It is also a good tonic for both the new age fantasy that better attitudes will solve problems and the pessimism of Malthus that all is lost since technology is fixed and population is rising. It is a book that should be read not only by the CEOs that are McKinsey & Co.’s natural audience, but also by NGO executives and by investors, who will provide the financial resources that serve as fuel for companies to build a more resource efficient tomorrow.